Forint down on flight from emerging assets

The National Bank of Hungary (MNB) kept its base rate intact as expected on Tuesday, but even its unchanged guidance and a government paper auction with falling yields could not prop up the Hungarian currency in a global markdown of emerging market assets while the fall of the Russian rouble seemed unstoppable.

The Hungarian currency is especially vulnerable, reflecting the large exposure of the biggest Hungarian companies and banks to Russian markets, analysts say.

The MNB repeated that "...achieving the medium-term inflation target points in the direction of maintaining loose monetary conditions for an extended period." Earlier, analysts expected the MNB to soften language in view of the deteriorating GDP and desinflation outlook, which was confirmed by MNB's new forecasts on Tuesday.

Neither helped a remark by MNB that sudden, sharp rise in risk premia may warrant tighter monetary policy, while the MNB also remarked that "downside risks to inflation increased."

At the regular auction of discount three-month T-bills the government sold only the planned amount despite a three-and-a-half times oversubscription, with yields up from the secondary market benchmark, but sharply down from a week ago.

The forint traded at 250,60 to the dollar, down from 248.55 late Monday. On Tuesday, it moved between 247.70 and 251.37, an almost three-year low. It was quoted at 260.98 to the Swiss franc, up from 257.42 late Monday. Its range on Tuesday was 256.85 to 261.81, a more than three-month low.